With Toronto’s mayoral election scheduled for October 27, the local news cycle has been dominated by coverage of the mayoral campaigns, and the various promises being made by leading candidates. One of the most talked about issues has to do with the Municipal Land Transfer Tax (sometimes referred to as the Home Buying Tax). Olivia Chow has been the most vocal on the topic, vowing to increase Toronto’s Land Transfer Tax in order to make it “more progressive.”
Andrew Lupton of CBC (read here), provides an excellent primer on how the tax works. Anyone who purchases a new home, condo or business in the city, is obligated to pay this tax. In residential home sales, taxes is charged as a percentage of the sale price. Homes below $400,000 pay a 0.5-1% tax, while homes over that amount pay 2%. The tax has been an extremely lucrative revenue stream for the city since its implementation in 2008. Just as an example, in 2010, the municipal government expected to earn about $160 million in the collection of MLTT, and instead, exceeded expectations by pulling in more than $275 million. Toronto is the only municipality in the country with such a tax, which must be paid in addition to the provincial property tax.
Chow’s proposed increase essentially introduces a new tax bracket, only affecting home and condo sales over $2 million, raising the tax obligation from 2% to 3%. Such an increase, Chow estimates, will affect approximately 500 transactions per year, netting the city an extra $20 million in tax revenue.
“Surely those people that can afford $2-million or $10-million homes, adding 1 per cent to the land-transfer fees I don’t think is too much.” – Olivia Chow
Chow has stated publically during campaign debates with Rob Ford and John Tory that she plans to spend this extra revenue in two ways. The first would be to help fund the public school board’s “breakfast program,” which provides healthy meals to children whose parents can’t provide them with one (for more read Don Peat’s article in the Toronto Sun). The second would be to finance the construction of an additional subway line running south to the downtown core, something that many believe, the city desperately needs.
Chow’s chances at becoming mayor have likely decreased since the unveiling of her tax hike proposal. Paul Etherington of the Toronto Sun (read here), offers some insight into the results of a recent Ipsos Reid poll conducted on behalf of the Toronto Real Estate Board in May of this year, asking a randomly selected sample of Torontonians whether they support an increase in the Land Transfer Tax. 58% of those surveyed support a reduction in the Land Transfer Tax, with 51% stated that they are more likely to support a Mayoral candidate who also supports a reduction or elimination. The most telling of all the conclusions drawn from the survey is that 67% of Torontonians planning to purchase a home in the next two years, are considering purchasing a home outside of the GTA to avoid the tax altogether.